Gov. impressed by privatization in Canada

Times Staff Writer

In a trip across Canada this week, as local leaders jostled one another to praise him as a statesman they could learn from, there was a moment when Gov. Arnold Schwarzenegger might have taken some notes of his own.

At a Vancouver construction site that he dropped by, workers were busily boring a tunnel for the type of public works project that the governor has been unable to get off the ground at home: one owned and operated entirely by a private company.

A 12-mile rail line that will connect Vancouver’s waterfront to its airport is one of dozens of ventures like it in Canada. Provinces are turning to private companies to build and operate trains, roads, public hospitals, university facilities -- even local schools.

“The way they do it is, I think, the right way to go,” Schwarzenegger said in an interview. “We don’t have to exactly copy it, but we can learn from those ideas.”


He said that Wall Street is clamoring to invest in private infrastructure projects and that California must examine ways to “benefit from all the private money that is out there.”

The governor has long championed the sort of large-scale privatization seen in Canada, calling it a solution to bureaucratic inertia and inefficiency in state government. Put services in the hands of the private sector, his argument goes, and the potential for profit will bring a new urgency to providing for the public.

But as other governments in North America and elsewhere move swiftly ahead with such plans, Schwarzenegger’s privatization campaign is faltering.

Days before the Vancouver visit, a legislative committee unceremoniously dumped the governor’s proposal to hire a few hundred private-sector engineers to help Caltrans with the cumbersome business of designing roads. Ideas he backed for building private toll roads, enlisting private firms to construct courthouses and contracting out more prison operations have stalled. A proposal to allow businesses to run freeway rest stops has been on the shelf for years.

“All new things take time for the legislators to really get familiar with,” Schwarzenegger said with characteristic optimism. “We don’t want to rush it and then make mistakes.”

But proponents of the projects have grown dismayed as tens of billions of dollars in private investment have found a home elsewhere.

In places such as Canada and Britain, where medicine is socialized and big government has long been part of the political fabric, private companies are doing hundreds of infrastructure projects. Most involve private interests building a project for a government and then operating it for decades through a long-term lease.

In Schwarzenegger’s case, “there has been a lot of rhetoric about this, then squat. Nothing happens,” said Adrian Moore, vice president of research at the Reason Foundation, a Los Angeles think tank.


Moore worked with the Schwarzenegger administration to craft privatization plans soon after the governor was elected. But he has since become critical of what he sees as Schwarzenegger’s reluctance to antagonize public employee unions.

“Canada is doing it, for crying out loud. I just spent 10 days in China, a communist country, and they are creating these partnerships right and left,” Moore said. “They don’t see this as some kind of mystical thing. They see it as a way to get things done.”

But the Democrats who control California’s Legislature have sided with public-employee unions that see privatization as a threat to tens of thousands of government jobs.

“Democrats -- we’re not in the business of contracting out state services,” said Assembly Speaker Fabian Nunez (D-Los Angeles). “It doesn’t fit well with our political diet.”


The only major privatization proposal Democrats have hinted they might embrace, albeit reluctantly, is not one that will get roads or rail lines built, or provide any other major construction: the governor’s plan to turn the lottery over to a private company. Democrats are attracted by the billions of dollars such a deal could generate, money that could be spent on government programs.

The last time Schwarzenegger tried to overhaul the state bureaucracy in the face of intense labor and Democratic opposition, he emerged battered. He abandoned one plan, a 2005 scheme to shift state pensions for new government workers to a 401(k)-style program -- a move that could have involved private financial managers in public retirement accounts -- after opponents said it threatened death and disability benefits for public safety officers.

Now, the governor says, he won’t demand privatization of public works until “the state is serious about this.”

He said he wants to be sure “that people are not going to put up roadblocks to show those things don’t work.... We’re just going to have to move forward slowly and carefully and do it the right way.”


Opponents of privatization say it simply doesn’t work. Unions point to failed experiments that ended with projects not completed on time, services deteriorating and tax dollars wasted.

One is a recent bid by Texas to privatize welfare enrollment. State officials accused a private consortium of bungling the project, which dropped more than 30,000 children from health insurance rolls in a six-month period. The state pulled the plug on the contract a few weeks ago.

In Nova Scotia, where private companies were hired to build and maintain 30 local school buildings, the government ultimately determined it could have saved tens of millions of dollars by doing the job itself.

But many governments have found ways to structure their contracts so that if a project is not completed on time or fails to provide the promised level of service, it is investors rather than taxpayers who get stuck with the bill. Most projects in Canada include such provisions.


“It is very rare that they come in late or over budget. If they do, the private company eats the costs,” said Jane Peatch, executive director of the Canadian Council for Public Private Partnerships.

Among the successes is a $1-billion bridge, built by a private company, linking Prince Edward Island to New Brunswick. A hospital in Vancouver was built and is maintained by a private company; government and university doctors provide care.

A privately built water treatment facility was completed $10 million under budget, and several sections of roadway throughout the country have been built and are maintained by private firms.

At a makeshift conference table under a canopy at the Vancouver construction site Thursday, British Columbia Premier Gordon Campbell told the governor that within a decade every major infrastructure project in his province will be built and managed by private interests.


David Crane, the governor’s chief economic advisor who was also at the table, said: “California is way behind.”